Smart Business talked with vice presidents Damon Gray and Howard Schwartz of PNC Institutional Investments for advice on choosing appropriate escrow services to help facilitate your next commercial transaction.
What is an escrow account?
Generally, escrow is a way of exchanging property or money using a neutral third party, typically a large financial institution that offers escrow services or an independent escrow company. The escrow agent retains custody of the assets cash and securities, to name a few until certain conditions are met, at which time those assets are released. While there are countless uses for escrow services, a few common examples include:
- Holdbacks on mergers and acquisitions
- Court case settlements
- Technology/intellectual property Escrow can be beneficial to both parties involved in the transaction, as the escrow agent not only holds the assets for safekeeping as a neutral third party, but also processes all disbursements required by the escrow agreement and provides accountings of all transactions.
What differentiates a good escrow agent from a bad one?
Given the vast number of reasons that companies may need an escrow account, it is important to screen escrow services providers to make sure they meet the specific needs of all parties. Here are five characteristics companies may consider when choosing an escrow agent:
Rapid turnaround: In many transactions, the escrow arrangement is often the last consideration in a long and often difficult process. When it comes to closing a deal, selecting a responsive and dependable provider that can set up an escrow account under tight time constraints is of paramount importance.
Expertise: Look for an escrow services provider whose staff has the ability to service different types of escrow accounts for a variety of situations. A trained and experienced escrow team usually equates to a smoother transaction and fewer hassles for your company.
Quality investment options: Frequently, the primary goal of an escrow arrangement is to protect or preserve a sum of money until it can be released to its rightful owner. Therefore, your escrow agent should be able to offer a comprehensive range of high quality money market mutual funds and/or other daily liquidity products that are designed to preserve capital. Be wary of investment options that carry an undue amount of risk to principal.
Comprehensive capabilities: Your escrow agent should provide all of the services necessary to ensure a smooth transaction throughout the entire process from review and preparation of the escrow agreement and instructions to the ultimate disbursement of the funds. That way, your business will not have to shoulder the administrative burden usually associated with managing an escrow account. Your escrow agent should:
- Review the escrow agreement and instructions
- Establish the escrow account as specified under the agreement
- Comply with depository duties and disburse funds as provided under the agreement
- Provide statements and reporting as required
- Assist in resolving issues related to escrow
Superior client service: Finally, you want your escrow agent to provide expert service to all parties involved in the transaction. If you choose escrow services from a reliable and trustworthy financial institution, a dedicated escrow professional will help you set up the account, makes investment options available and remains accessible throughout the entire process. Web-based reporting may also be important for your business, and should complement the more personalized service from your escrow professional.
This article was prepared for general information purposes and does not constitute the provision by PNC of investment, legal, tax or accounting advice. Any reliance upon this information is solely and exclusively at your own risk. The PNC Financial Services Group, Inc., provides escrow services through its subsidiaries, PNC Bank, National Association and PNC Bank, Delaware, which are Members FDIC.
DAMON GRAY is vice president of PNC Institutional Investments. Reach him at (215) 585-4680.
HOWARD SCHWARTZ is vice president of PNC Institutional Investments. Reach him at (215) 585-7637.